Interview with Stefano Ponte
Xiomara F. Quiñones Ruiz (University of Natural Resources and Life Sciences, BOKU Vienna)
Stefano Ponte is a leading researcher and professor at the Centre for Business and Development Studies (CBDS) at Copenhagen Business School. He is primarily interested in transnational economic and environmental governance, with focus on overlaps and tensions between private authority and public regulation. He is particularly interested in how sustainability labels, certifications and codes of conduct shape power relations in global value chains, and in how different forms of partnerships affect sustainability outcomes.
Quiñones Ruiz: Could you share with us your main researGrabsch interests and/or fields of study and how you embarked (got connected) to the convention theory?
Ponte: My research interests coalesce around the topic of governing economic life – through markets, regulation and hybrid forms of governance. My primary interest lies in transnational economic and environmental governance, with focus on overlaps and tensions between private governance and public regulation. My research, fieldwork, teaching and policy work is informed by international political economy approaches, global value chain analysis and convention theory.
I analyze governance dynamics and economic and environmental upgrading trajectories in global value chains — especially in developing countries and in Africa. I am particularly interested in how sustainability standards, labels and certifications shape agro-food value chains, and in how different forms of partnerships affect sustainability outcomes. I am also involved in projects critically examining the role of celebrities and branding in these processes, new forms of corporate social and environmental responsibility, and cause-related marketing.
I started being interested in convention theory when I attended a workshop in Copenhagen on global value chains and the filière approaches in mid-1999. I had just moved to Denmark to join a research project on value chains in the agro-food sector in Africa, which was coordinated by Peter Gibbon. It was the first workshop of the programme and the group had decided to discuss a series of relevant theoretical readings. Benoit Daviron of CIRAD was part of that project and he had suggested reading a recent publication by John Wilkinson in the Review of International Political Economy, discussing convention economics and regulation theory, plus some Francophone literature on the filière approach, economics of convention (Eymard-Duvernay’s work in particular) and pragmatic sociology (especially Thévenot and Boltanski’s opus magna: Boltanski and Thévenot 2006). This first engagement eventually led to my long-lasting relationship with Daviron and Gibbon (2005) and the publication of two co-authored monographs in 2005 on the role of quality conventions in governing value chains in general, and in the coffee sector in particular. Benoit Daviron also facilitated my first personal contacts with key French figures in the field of regulation theory and pragmatic sociology – Gilles Allaire, Robert Boyer and Laurent Thévenot in particular – with whom I have interacted and collaborated regularly over the years.
Quiñones Ruiz: Indeed, you have made a great and inspiring contribution related to the understanding of the coffee paradoxes, namely, your co-authored masterpiece The Coffee Paradox (e.g. coffee crises in producing countries (i.e. very low prices paid to producers), coffee boom in main consuming countries usually based in the North; producer countries mainly selling material quality while actors in consuming countries sell symbolic and in-service quality). Since the publication of the Coffee Paradox, what are the developments observed to reduce or to cope with the coffee paradoxes?
Ponte: A lot has happened since the publication of the Coffee Paradox (Daviron and Ponte 2005). The industry has gone through two phases since about 2008 – one of diversification followed by one of reconsolidation. The latter has been marked by a new wave of restructuring of coffee roasters that has reverberated across the entire industry. During the first period (around 2008 – 2012), in response to a general economic slowdown, the diversified multinationals that had previously held great market power sold or spun off their coffee portfolios amidst the global recession and a general slow-down in the sector. During the second period, from 2010 to 2014, the explosive growth of the specialty sector allowed companies such as Starbucks and Keurig Green Mountain, as well as smaller boutique roasters, to increase their market shares. This trend provided some hope that the balance of power along the value chain could be somewhat re-equilibrated to the advantage of producers, at least those operating in the specialty sector (often larger farms and more organized cooperatives).
However, as the economy recovered from 2012 onwards, and the new consumer segment of “millennials” acquired more spending potential, the coffee market – and in particular its specialty segment – was recognized as strategic long-term investment opportunity for private equity firms such as JAB Holding. This initiated a major re-consolidation movement. Nestlé, after years of relatively unchallenged market leadership, suddenly had to face a serious contender for global dominance in JAB Holding. This battle for market dominance also reverberated across the industry, causing other roasters to strengthen their own portfolios. It further led to greatly increased downward price pressure on green coffee, and all upstream actors, in particular growers and traders, had to work with slimmer margins.
Large traditional roasters have made massive investments in recapturing at least part of the high-margin specialty market, and in the process have brought their large market power to bear on it. Nestlé, for example, has aggressively developed its high-end single-serve capsule Nespresso line, while Starbucks has now grown to become the sixth largest roaster globally. Other major roaster groups have been acquiring specialty roasters at a high speed: JDE, for example, acquired Peet’s Coffee in 2012; its holding company (JAB) took over Keurig Green Mountain coffee in 2015. As they aim to scale up their performance in this lucrative sector, roasters frequently adopt top-down sourcing management schemes that negate the aspirational equal-footed relations and quality conventions pursued in relationship coffees. For instance, the sustainability verification systems used by Starbucks and Nespresso allow them to obtain precious information on suppliers’ cost structures as well, thus strengthening roasters’ bargaining power and ability to extract value in higher-margin markets.
In other words, the potential held by specialty coffee, indications of geographic origin, sustainability certifications and direct trade to tilt the balance of power in the coffee value chain towards producers has been tamed. This is casting doubts on whether specialization in differentiated coffees allows for sustained shifts in the socio-spatial distribution of value and risk. In sum, we find new dependency relationships emerging, which are closely linked to Northern-dominated quality conventions.
At the same time, and despite the widespread dismantling of coffee institutions, several important countries have bolstered their institutional power by supporting their coffee value chains through enforceable (Colombia, Costa Rica, Cote d’Ivoire) or suggested (Brazil) minimum prices for export contracts. Some countries still operate export auctions (Kenya, Tanzania, Ethiopia) and regulate export quality and/or require licenses for exporters. Several other support mechanisms are being applied, such as price stabilization funds, disease prevention support and producer income assistance, support for the development of geographic indications, and programs targeting climate change adaptation and improvements in quality and sustainability. These steps thus have helped to curtail some of the power otherwise exercised by large-scale traders and roasters through public intervention. This slow renaissance of institutional involvement and power in the coffee value chain culminated in the 2017 World Coffee Producers’ Forum, convened by the Colombian Federation of Coffee Producers, which openly discussed the inadequacy of current market-based price discovery mechanisms in generating prices that cover producers’ production costs, and called for an investigation of price and cost trends – along with the determination of a sustainable minimum price. Industry insiders see these steps as possible precursors to renewed attempts to align producing country strategies, especially as production is getting increasingly concentrated in three origins (Colombia, Brazil, and Vietnam).
In sum, although recent changes in the coffee Global Value Chains (GVC) toward a more heterogeneous and stratified product portfolio may have lent some power to producing country actors, particularly when proposing new specialty coffees, the overwhelming tendency in current re-consolidation efforts is one where large disparities in bargaining power persist – translating also into buyers being able to impose increasingly stringent terms onto their suppliers (in some cases, roasters’ payment terms to traders increased from 30 to 180 days). The simultaneous but partial renaissance of producing-country institutional power, and through unilateral and incipient multilateral means (e.g. the World Coffee Producers’ Forum), constitutes an important effort for addressing unequal exchange. However, as the experience of the International Coffee Agreement has shown, such efforts frequently face collective action, free-rider, and rent-seeking problems. [I owe many of these insights to Janina Grabs, postdoctoral researcher at the University of Münster – see also Grabs and Ponte, 2019 ]
Quiñones Ruiz: In the EC, conventions are understood as interpretative frames on how to handle institutions (e.g. rules, practices) in situations of coordination. Could you tell us how EC has been beneficial to your research work so far, especially in the coffee sector?
Ponte: EC was absolutely essential in my research for understanding how negotiations over quality along the coffee value chains shaped power relations, the governance of the value chain and associated distributional outcomes. This showed that critiques of EC focusing on its purported lack of attention for power relations were misplaced. I found EC extremely useful in addressing key issues in international political economy. Engaging with EC, first through quality conventions and the work of Eymard-Duvernay, and later more broadly in relation to the pragmatic sociology of Thévenot, allowed me to examined power relations along value chains in a much more nuanced way than in mainstream political economy approaches. This was the case not only in relation to my work on the coffee industry, but also in other empirical settings (e.g. wine, seafood and other agro-food products). Theoretically, it has been the very base for my current work with Mark Dallas and Timothy Sturgeon that seeks to provide a typology of power in global value chains which can be used to unpack not only bargaining relations or institutional settings, but also what we call “demonstrative” and “constitutive” power. These two forms of power are closely related to some of the insights of EC. Finally, my recent book Business, Power and Sustainability in a World of Global Value Chains (2019, Zed Books) builds upon these foundations.
Quiñones Ruiz: Would you say, that a country such as Colombia, where the coffee sector is heavily regulated in terms of quality control, origin, minimum prices (i.e. by developing own quality standards, geographical indications, trademarks, Juan Valdez coffee shops outside Colombia, garantía de compra, etc …), combines several conventions, for instance domestic but also market and industrial conventions? Could you elaborate on this? And even with these conventions put in place why the situation of producers does not improve? One of the possible explanations is that producers still sell mainly green coffee (material quality)?
Ponte: Well, Colombia has actually done a lot more than other countries to create and control value domestically / for farmers and their institutions. The Juan Valdez coffee shop chain is one example, and efforts to defend and manage the “Café de Colombia” denomination have been quite important. However, there has been much less effort done to develop more local and specific indications of geographic origin – actually Peru and Guatemala, for example, have been more advanced than Colombia. But even with these in mind, the fact that the coffee industry has gone through a period of re-consolidation with mainstream roasters buying formerly-known as specialty or “independent” roasters is not a good sign. In the period before the current one (see above), with increasing fragmentation we did see both increases in international market prices and in returns to farmers (but usually those who are more advanced and/or are part of more sophisticated cooperatives).
Quiñones Ruiz: Sometimes I feel a bit disappointed by the fact that the green convention is disregarded by important coffee stakeholders with explanations concerning low productivity, lower incomes, “if producers do not get well-paid, they would not take care of the environment”, etc. However, without soil, water, natural resources; changing climate conditions, producers would not be able to produce coffee and consumers would hardly find a cup of coffee …. What is your opinion on this?
Ponte: Climate change is a real threat, and roasters are indeed very worried about future sources of coffee, especially Colombian-type Arabicas. At the same time, though, they continue to squeeze margins and increase payment terms to international traders (now up to 180 days for some!). So on one hand they know they need to pay better prices, but on the other they continue to take short-term profit maximization approach, which will create further problems down the road. This is really a conundrum, as these roasters at the same time engage in all these “development projects” that are framed as “Corporate Social Responsibility” or “helping farmers” but are really investments in minimizing strategic origin supply risk.
Quiñones Ruiz: Additionally, to what extent should our desire to consume quality coffee (mild washed Arabica) only be the result of a washed production method?
Ponte: I do not see much potential in other places (meaning outside of Ethiopia) or beyond very small niches. Properly washed Arabica is still the top processing method. Drinking straight Ethiopian naturals requires quite an adjustment of taste, and very often they are best mixed with washed Arabicas in high-end espresso blends (instead of Robusta)
Quiñones Ruiz: In addition to the three quality types as clearly illustrated in The Coffee Paradox, that is, material, symbolic and in-person service, a) do you think that a new type of quality can be included, namely, a kind of origin/social quality describing the roasting of green coffee at origin by producers (e.g. themselves with own/collective brands or by contracting the services of local roasters)? or b) this does not make any sense?, or c) should it be added to the already symbolic category?
Ponte: Another very good set of questions! I have been reluctant to engage in adding a new category of quality convention (green) in the past, despite many others having actually made an argument for it (including Bruno Latour). I think that what has been happening in the past few years, and especially with the setting of the Sustainable Development Goals, made me change my mind. I am now thinking that environmental issues have their own special place, not only as a sub-category of “symbolic” quality, but rather as a category on their own, as they being in hybrid physical/symbolic elements at play.
Quiñones Ruiz: Now, I pose these questions because for the proposed symbolic quality it is assumed that this happens in the North (main consuming countries). Despite the relatively recent booming of local markets for specialty coffee in the producing countries, it is well-known the little know-how and lack of facilities and machineries/technology to roast at origin. (By the way, we in the South do not truly drink coffee, only recently this trend has started!) I have asked some third-wave roasters about buying roasted coffee at origin, the usual answers are: the quality is not good/I am roaster of specialty coffee/at origin, they do not know how to roast/producers should “specialize” in producing good [material] quality.
Ponte: I think that the trend of coffee consumption in the Global South is strong and very important, not only in producing countries, but also in emerging markets such as China. In these two segments, the strategies for value addition will probably be quite different. In producing countries, it will probably involve a better approach to roasting and consumption experience, which has been there in Brazil and Ethiopia all along, but not so much in other locations. In non-producer emerging economies, there will be a bifurcated approach I think: low-end cheap coffee (mainly Robusta) and very-high end consumption patterns that may reflect the Chinese craze for top-top quality (e.g. in the wine sector). I think delivering material quality remains important, but symbolic and indeed green content will become increasingly central for value addition and capture.
Quiñones Ruiz: A way to “cultivate” consumers (at origin and abroad) might be by proposing a kind of origin/social quality that goes beyond taste – or cupping as one of the coordination devices for quality –, but proposing a way (alternative) to trigger a fair value distribution and acknowledgment (i.e. of the hard work done represented in a product), not only based on export but also in local markets? Here again your argument concerning the massive investments and capital flows of the big fishes in the coffee industry, right?
Ponte: Cupping at origin is still very important, and the Cup of Excellence competitions have shown that it can pay off handsomely for those producers and cooperatives who have invested in this learning trajectory. But it will have still to be accompanied by major strides in adding symbolic/green content at origin and promote/control it throughout the value chain.
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